Welcome to the HEICO Corporation First Quarter 2024 Financial Results Call. My name is Samara, and I'll be today's operator. Certain statements in this conference call will constitute forward-looking statements which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include the severity, magnitude, and duration of public health threats such as the COVID-19 pandemic, HEICO's liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes or airline purchasing decisions which could cause lower demand for our goods and services, product specification costs and requirements which could cause an increase to our costs to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space, or homeland security spending by U.S. and/or foreign customers, or competition from existing and new competitors which could reduce our sales, our ability to introduce new products and services at profitable pricing levels which could reduce our sales or sales growth, product development or manufacturing difficulties which could increase our product development and manufacturing costs and delay sales, our ability to make acquisitions including obtaining any applicable domestic and/or foreign governmental approvals, and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange and income tax rates, and economic conditions including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries which could negatively impact our costs and revenues. Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including but not limited to, filings on Form 10-K, Form 10-Q, and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise except to the extent required by applicable law. I now turn the call over to Laurans Mendelson, HEICO's Chairman and Chief Executive Officer. Thank you, Samara, and welcome to everybody on this call. We thank you for joining us, and we welcome you to the HEICO First Quarter Fiscal 2024 Earnings Announcement Teleconference. I am Laurans Mendelson, the Chairman and CEO of HEICO Corporation. I'm joined here this morning by Eric Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Before reviewing our operating results in detail, I would like to take a moment and thank all of HEICO's talented team members for delivering another very, very strong quarter. Your continued focus on exceeding customer expectations and operating at peak performance level continue to fuel our excellent financial results. I personally have never been more optimistic about the future of HEICO. I would now like to summarize the highlights of our First Quarter Fiscal 2024 record results. Consolidated operating income and net sales in the First Quarter of Fiscal 2024 improved by 39% and 44% respectively as compared to the First Quarter of Fiscal 2023. These results reflect mainly a 12% organic net sales growth in Flight Support, commercial aerospace products and services, as well as the impact from our profitable fiscal 2023 and 2024 acquisitions. Consolidated net income increased 23% to $114.7 million or 82 cents per diluted share in the First Quarter of Fiscal 2024, and that was up from $93 million or 67 cents per diluted share in the First Quarter of Fiscal 2023. Net income attributable to HEICO in the First Quarter of Fiscal 2024 and 2023 were both favorably impacted by a discrete income tax benefit from stock option exercises. The benefit in the First Quarter of Fiscal 2024 net of controlling interest was $13.3 million, and that was up from $6.1 million in the First Quarter of Fiscal 2023. Consolidated EBITDA increased 43% to $224.4 million in the First Quarter of Fiscal 2024, and that was up from $157.1 million in the First Quarter of Fiscal 2023. I mean, that is an enormous increase, if I say so myself. The Flight Support Group set an all-time quarterly net sales and operating income record in the First Quarter of Fiscal 2024, improving 67% and 63% respectively over the First Quarter of Fiscal 2023. The increases principally reflect the impact from our Fiscal 2023 acquisition of Wencor and 12% organic growth, mainly attributable to increased demand within our aftermarket replacement parts and repair and overhaul parts and services. Our net debt to EBITDA was 2.79 x as of January 31, 2024, and that was down from 3.04x as of October 31, 2023. When we acquired Wencor, our pro forma leverage ratio was slightly above 3x, and we had projected pro forma leverage to be 2x within 12 to 18 months post-acquisition. At this time, I am pleased to report that we continue to remain on track to achieve this target. Cash flow provided by operating activities increased 46% to $111.7 million in the First Quarter of Fiscal 2024, and that was up from $76.7 million in the First Quarter of Fiscal 2023. We continue to forecast strong cash flow from operations for Fiscal 2024. In January 2024, we paid our regular semiannual cash dividend of $0.10 per share, and this represented our 91st consecutive semiannual cash dividend since 1979. In January 2024, we were honored to announce that I received the Kenn Ricci Lifetime Aviation Entrepreneur Award from the Living Legends of Aviation. The Living Legends of Aviation recognition is given to remarkable people of extraordinary accomplishment in aviation, including entrepreneurs, innovators, industry leaders, astronauts, record breakers, pilots who've become celebrities, and celebrities who have become pilots. I was profoundly humbled and honored that this storied and unique organization would include me with such aviation and space pioneers for this special honor. However, in my opinion, the honor really belongs to HEICO's 10,000+ team members who are the ones that make HEICO the great company that it is. Now, let me discuss our recent acquisition activity. In December 2023, we entered into an exclusive license and acquired certain assets for the capability to support Boeing 737NG/777 cockpit display and legacy display product line from Honeywell International. We do expect the exclusive license and asset acquisition to be accretive to our earnings in the year following closing. The acquisition broadens our avionics capability and is another example of ways that HEICO has grown into adjacent markets to increase our overall value proposition to customers and the industry. At this time, I would now like to introduce Eric Mendelson, who is Co-President of HEICO and President of HEICO's Flight Support Group. He will discuss the first quarter results of the Flight Support Group. Eric. Thank you very much. The Flight Support Group's net sales increased 67% to a record $618.7 million in the First Quarter of Fiscal 2024, up from $371.3 million in the First Quarter of Fiscal 2023. The net sales increase in the First Quarter of Fiscal 2024 reflects the impact from our profitable Fiscal 2023 acquisition of Wencor, which continues to perform above our expectations, as well as strong 12% organic growth. The organic net sales growth mainly reflects high teens organic net sales growth from both our aftermarket replacement parts and repair and overhaul parts and services product lines. The Flight Support Group's operating income increased 63% to a record $136.1 million in the First Quarter of Fiscal 2024, up from $83.6 million in the First Quarter of Fiscal 2023. The operating income increase in the First Quarter of Fiscal 2024 principally reflects the previously mentioned net sales growth, partially offset by higher, as expected, intangible asset amortization expenses due to the Wencor acquisition, as well as increased inventory obsolescence expense. The Flight Support Group's operating margin was 22% in the First Quarter of Fiscal 2024 as compared to 22.5% in the First Quarter of Fiscal 2023. The Flight Support Group's operating margin before intangible amortization expense was 24.8% in the First Quarter of Fiscal 2024 versus 24.3% in the First Quarter of Fiscal 2023. The small decrease in operating margin principally reflects a slightly lower gross profit margin in the previously mentioned higher expected intangible asset amortization expense due to the Wencor acquisition, partially offset by lower performance-based compensation expense. Now, I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the First Quarter results of the Electronic Technologies Group. Thank you, Eric. The Electronic Technologies Group's operating income was $55.3 million in the First Quarter of Fiscal 2024. The Electronic Technologies Group's net sales increased 12% to $285.9 million in the First Quarter of Fiscal 2024, up from $255.1 million in the First Quarter of Fiscal 2023. The net sales increase is mainly attributable to the impact from our Fiscal 2023 acquisitions and a double-digit increase in organic net sales of our aerospace products, partially offset by lower organic net sales of our other electronics, medical, and space products. We continue to forecast strong net sales and earnings growth for the remainder of Fiscal 2024. The Electronic Technologies Group's operating income was $55.3 million in the First Quarter of Fiscal 2024 as compared to $56.5 million in the First Quarter of Fiscal 2023. We expect higher net sales and profit margins in the quarters ahead and over the long term. This is due to our shipment schedule supported by our near-record backlog, combined with the revenues we expect because of our new product research and development activities. The slight operating income decrease principally resulted from our subsidiary shipment schedules of our record backlogs, with fewer shipments in the First Quarter than scheduled in future quarters, something that was scheduled prior to the quarter's start and is in line with our internal plan. For those familiar with our last earnings call and our public interaction since then, you will remember that we said to expect high results variability quarter to quarter this year, with the First Quarter being our weakest quarter. So this proceeded just as expected. Naturally, the less favorable product sales mix resulted in lower SG&A efficiencies. Also, recognizing our large record backlogs and our forward growth potential, we increased new product research and development investment, which increased expenses in the quarter so that we can gain revenue in future quarters. As I sit here today, I am very pleased that we made those investments and that we continue to fully fund these activities, which provide important forward growth. Importantly, our net sales increase in acquisition costs in the First Quarter of Fiscal 2023 related to the closing of an acquisition were beneficial to our results. The ETG's operating margin was 19.3% in the First Quarter of Fiscal 2024 as compared to 22.2% in the First Quarter of Fiscal 2023. As acquisition-related amortization was around 400 basis points, what we and others consider to be our true margin was closer to 23.5%. Again, we expect the margin, both before and after amortization, to improve materially in the quarters ahead. The lower margin principally reflects what I just discussed, namely the product sales mix due to the shipment schedule, higher new product research and development expenses, as well as increased selling general and administrative expenses as a% of net sales, which supports our forecasted strong net sales and earnings growth for the remainder of Fiscal 2024, partially offset by the previously mentioned lower acquisition costs. For the full year, we expect SG&A expenses to decrease as a percentage of net sales as our net sales increase. I now turn the call back over to Laurans Mendelson. Thank you, Victor. I think it should be clear to everyone on this call that Victor and we are expecting a quite different result from ETG from the second quarter through the end of the year. And in the first quarter, some people, I think, misunderstood, and they said, "Oh, ETG is not doing well." And I think Victor explained it very well. So you understand that it is a lumpy business, and the sales and earnings should come through from the second to the fourth quarter. As we look ahead to the remainder of Fiscal 2024, we continue to anticipate net sales growth in both the Flight Support and ETG, principally driven by contributions from our Fiscal 2023 and 2024 acquisitions, as well as demand for the majority of our products. Notably, we fully expect future ETG quarters to be materially stronger than the first quarter. In addition, we plan to continue our commitment to developing new products and services with further market penetration, as well as maintaining our financial strength and our flexibility. In closing, I would again like to thank our incredible team members for their continued support and commitment to HEICO. Our strategy of growing a highly diversified portfolio of excellent businesses continues to produce favorable results for all shareholders. Our end markets are very healthy, and Fiscal 2024 is looking to be another great year. Thank you for your continued confidence. And as I said before, I have never been more bullish about HEICO's future. One other comment: we do not now give any guidance. Some analysts have asked us to give guidance. We prefer not to. However, I have said publicly that our goal is to grow net income 15%-20% annually compounded. Over the last 30-33 years, I think we have done that, and the actual growth has been somewhere around 18% or 19%. I can tell you that based on everything that I know at this moment and based upon what we expect for the future of this year, I clearly and highly confident that we will attain that 15%-20% growth in the current year and that without any future acquisitions, which we might make. So with that, I would like to turn the call back to our operator, Samara, and open the call for questions from listeners. I thank you again very much. Samara? Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from Robert Spingarn with Melius Research. Please go ahead. Good morning. This is Scott Mikus on for Rob Spingarn. Good morning. Good morning. Eric, I wanted to ask you, some of the U.S. airlines, they've readjusted their capacity growth plans for the year. Some of that's due to aircraft delivery delays or the GTF issues, but some of it's just over concerns related to the U.S. domestic market being overcapacitized. So are you seeing any change in order patterns from customers where maybe the low-cost carriers are slowing down their orders, but the large network carriers like United and Delta are accelerating their orders? So, we see. Good morning and thanks for your question, Scott. With regard to what we see in the market, the market continues to be extremely strong across the board. I think, yes, the large commercial carriers are particularly strong. There has been a little bit of weakness with some of the lower-cost carriers, but nothing really pronounced at this point. There are natural order patterns where things can get a little lumpy and shift around. So, I don't want to, I wouldn't want to predict any weakness there. Right now, there continues to be a shortage of parts. Airlines are still in need of parts, are still trying to grow their inventories. So, we see the market as very strong. Okay. Got it. And then I wanted to ask, you've owned Wencor for about a little more than half a year. So I was just wondering if you could share some of the best practices that Wencor has learned from HEICO, and what are some of the best practices that HEICO has learned from Wencor so far? Yeah. That's a good question. The Wencor acquisition has been exceeding expectations in every single area: the business, the people, the strategy. It's been incredibly strong, and we had very high expectations for it, and they're even beating those numbers. Specifically, looking at areas of best practices, I would say that HEICO is particularly strong in the technical arena. Wencor is also strong in the technical arena, but I think there are some things where Wencor has been able to benefit from that, as well as HEICO benefiting from Wencor in other areas. And then in particular, in the e-commerce area, I think Wencor has been able to benefit HEICO in that area. So we see continued synergies without integration. So our plan is to continue to operate Wencor for the time being or for the foreseeable future as an independent business. And that's the DNA of HEICO. That's how we operate all of the HEICO businesses. We want Wencor to continue, obviously, to have its own P&L, its own strategy, its own team members. HEICO is strongest when each of the individual business units take care of themselves and coordinate with the other ones. I would say that I look at the cooperation between HEICO and Wencor as somewhat analogous between the cooperation if you look at a number of the European airline groups. You look at Lufthansa and Swiss or Air France and KLM or British Airways and Iberia, and they maintain their independence, their separate touch and feel and relationships with the customers, separate people, but they coordinate some of the activities behind the scenes, making sure that the schedules and the product offerings are supportive of each other. That's what we've been able to do very successfully. Wencor continues as an individual autonomous business. No plan to change that. We are making sure that we provide tremendous value to our customers as a result of making sure we don't have, for example, a product development overlap where we rationalize some of the repair offerings in various centers of excellence focused on different products and technology. Our customers have been very happy as a result of the acquisition and are really excited about where we're headed there. I think they really want to reward us with significant additional new business. They view HEICO in a very different light as a result of the Wencor merger. I'll stop there. Thanks for taking the questions. Thanks, Scott. Thank you. We'll take our next question from Noah Poponak with Goldman Sachs. Please go ahead. Hey. Good morning, everyone. Good morning, Noah. Last quarter, you had talked about the ETG margin for the full year being around 24%, that segment operating margin. Does that stand such that you'd have one or two quarters above that? And I know you don't give quarterly guidance, but given the variability here, I don't know if it makes sense to just speak to the shape of that over the remaining three quarters of the year. Sure. Noah, this is Victor. The answer to your question is yes. And as to the shape of it over the remaining quarters, I think the year should build. I'm not sure yet. The fourth quarter is a little far out, whether the fourth quarter finishes above or a little less than the third quarter. And the third is our high point or our fourth is our high point. Not sure about that. But at this point, based on the shipment schedules, that's how we think it'll play out. Okay. Eric, on the FSG margin, the full-year look was around 21% on the GAAP segment operating margin. I think you guys had also said you expected the first quarter to be the low point of the year. I don't know. Maybe you could update us on how you see that playing out through the rest of the year or if there's a new number for the full year, given what you did in the first quarter. Well, the first quarter was very strong at 22%. When you add back the intangible amortization, we get to about 24.8%. So extremely strong. We anticipate continued strength. I think I want to be a little bit conservative going forward. We often go ahead and we come out with our budgets and our numbers, and our folks end up beating those numbers. But maybe Carlos wants to shed some light specifically on that. Sure. Hey, Noah. It's Carlos. I don't think my view on the segment. Can you hear me okay, Noah? I can. Yeah. Yeah. Okay. Yeah. Sorry. So I was going to say, I don't think my mind has changed on what the segment should produce this year. Back in December, when we were sort of looking out and I got the margin question, I felt like the FSG was probably between 21%-22% OI margin, that that's what I felt the company would do for the year. We could always do better than that, but that's what we planned. And we did plan on having a strong first quarter in the FSG. So I think that that thesis continues to hold up. But of course, as we get into the second quarter and we get to the next call, I'll see if I can tighten that range up for you. Okay. Appreciate that. One other thing I wanted to ask, I guess it's kind of for everyone, but you're in this unique position now vis-à-vis PMA and pricing in the aftermarket that's maybe more unique than we've seen in a long time because your peers that build and sell spare parts have had such strong pricing for 2+ years now. We don't really know exactly how you've priced PMA. Presumably, that gap has widened. Maybe it's widened a lot. And so you have the opportunity to take more price than you normally do or take more share than you normally do or both. And I'm curious to hear you talk about how you will strategically manage which of those you want to go after and how you will look to triangulate that over the medium term here. Noah, that's a great and insightful question. The short answer is I think we need to do both. We need to adjust pricing to reflect our increased costs, and we also need to grow market share. So that is the strategy. We have a number of customers who have been purchasing parts at fairly old prices before there was cost inflation. So we need to make sure that we pass along our cost increases. And I think our customers are very understanding of that. Some customers get it and are just fine and go ahead and incorporate the new pricing. Other customers want to have a discussion over it. And obviously, we don't show them what our costs are, but we explain what's happened to our costs, and this is only reasonable. So honestly, I think that our pricing has been a lot more conservative and gentle than it could be. Our competitors are substantially raising price. I just received an email last night from a I don't want to call out the OEM, but it's an OEM that everybody knows. And they increased price twice last year, once 10% and another time 18%. And by the way, I will mention it was not TransDigm. So I know people are very interested in the TransDigm story, but it was not TransDigm. So it shows how pervasive the price increases are. So I think that we've been very mild. And I think, frankly, with costs going up and the need to spend additional dollars on new product development, that it would be reasonable to have additional increases and I think we'll be able to capture market share at the same time. I don't think those two are mutually exclusive. If you talk to the airlines, I think, HEICO, nobody wants a price increase, obviously, but the airlines all recognize that HEICO has been extremely gentle with regard to price increase. Frankly, in areas where we have been more restrictive on price increase, we anticipate significant share gains as well. Okay. Super interesting, and appreciate all the detail. Thank you. Thanks, Noah. We'll take our next question from Scott Deuschle with Deutsche Bank. Please go ahead. Hey. Good morning. Good morning. Hey, Eric. Did Boeing's challenges in January have any impact to FSG specialty products growth in the quarter? Yes. I would say they did. Boeing has had some challenges, and as a result, the new build has been impaired. So that definitely had an impact on specialty products. I would also like to point out that while specialty product sales were a little soft, it caused the reported organic growth rate to be, if you will, understated because the aftermarket growth rate was very high teens. A lot of the we're very bullish on the future, and a lot of what specialty products does is on the defense side. And as you know, in a lot of missile defense and space programs, rocket motor programs, these are very long lead-time items. So our order book is extremely strong. We're very, very bullish on the future. We feel that we're well embedded. We've got some great secular trends. We're the low-cost, high-quality, sole-source producer on most of this stuff, and we think that the future will be very good. I'm not at all concerned about the specialty products being down. I think Boeing also will get their act together. I mean, obviously, they've got some challenges that we've all read about, but Boeing is still a great company. I think that they'll get that all figured out, and it will permit our specialty products to grow at sort of more historic rates. Okay. So it would be fair to think that maybe some of that Boeing-related weakness has probably lingered in the February, but the growth in the space and defense side allows you to return to growth overall in specialty products next quarter? I need to look at specifically with regard to next quarter, but what you're saying sounds logical. Okay. And then Victor, are you able to quantify how much R&D was up at ETG in the quarter? And then if there's any specific areas of investment you can talk about, I think that'd be pretty interesting to hear. Thank you. It was pretty broad-based. There were places, I think, where and where I know that we invested more than in the past. But I would say it's a pretty broad-based scenario, which is good because I like to see and we like to see that all of our companies are investing in R&D. R&D was up by about, I believe, in the quarter, about 25%, 24%, something like that. So it was a significant increase for us. Okay. Last question, Victor. Were there any changes in your F-35 content with the shift to TR-3? Thank you. By the way, it's closer to 22%, I think, was the net increase for ETG alone in the quarter. Yeah. About that for ETG in the quarter. I'm sorry. The question you just asked, could you repeat that, please? Yeah. It was whether there were any changes in F-35 content with the shift to TR-3. I don't think it's material to us. We do have in a few of our businesses F-35 content, but overall, it's not a material change. All right. Thanks, guys. Thank you. We'll take our next question from Larry Solow with CJS Securities. Please go ahead. Great. Good morning, everybody. Eric, thanks for the color on one quarter and also just the segment. Just a couple of follow-ups on that. So the high teens growth you're experiencing, I think it's relative or comping to mid-20s growth last year. So pretty remarkable. Congrats to that. Obviously, end-of-market demand sounds like it's still growing, but could you help us give us a little more color on where else those gains are coming from? Just kind of bucketing market share gains. Are there, obviously, some of that still occurring? The inventory levels, you mentioned still low, but are they building back up? Is some of that still creating some of the difference between true-end market demand and the growth you're reporting? Can you catch up in maintenance, maybe? I'm just trying to figure out. I'm trying to gap the difference there. Yeah. Hey, Larry. I'd be happy to answer that. The strength within Flight Support on the aftermarket side has really been across the board. I would say, in general, a little more strength in the parts side as compared to the repair side. Airlines are flying the equipment hard. It's more difficult to get things repaired. But in general, I would say the parts side is a little bit stronger, but the repair side is also doing very well as well. As far as market share gains, we continue to grow market share. Our customers are really happy with us. And speaking with our sales heads yesterday, I have specific information from a number of customers that they really are very, very happy as a result of the Wencor acquisition. While HEICO was always a significant player in the space, and so was Wencor, the fact that we've come together and we can offer a broader product line, a broader suite of products, is really significant. A fair amount of energy was spent in each business focusing on capturing as much as it could. Now, by creating more of these centers of excellence where each business focuses on where it has a true competitive advantage and doesn't need to, if you will, reinvent the wheel, makes a lot of sense. Our customers are really happy about that because we're able to provide a much fuller suite of offering to the customers, and they recognize that this is true structural advantage that they can benefit from as opposed to more niche-oriented strategy. Market share gains. We have had some pricing gains. I don't have a breakout between the two, but I would say that market share is definitely the leading number there. Got it. No, I appreciate that. And then just switching gears to ETG question, Victor. Just on the quarter and the outlook, it sounds like aerospace had some good follow-through. And I know it was a little slow last year, at least on deliveries, but that obviously sounds like that's continuing to return to growth mode. Just in terms of the other categories, I know it sounds like you mentioned a few that were just slower due to timing: electronics, medical, consumer space. And those sound like they're all higher-margin categories. I think on the last call, you guys had mentioned that there would be some of those I think maybe the electronics piece would be slower. Is that still the case? Has anything changed in terms of your sort of full-year outlook for ETG in terms of revenue composition and growth? So overall, all-in for the year right now, I think our expectations are pretty much what they were during our last call. It is the general markets that all-in gave up ground in the quarter as we expected they would. We're beginning to see some what I'd call the proverbial green shoots in a few of the businesses, but we're still not running at order levels higher than prior year. And as I kind of talked about before, I expect that sometime over the next couple of quarters, orders to start to reverse overall. And then. Excuse me. One second. Thank you. Computer went off here in the room. And then I would expect that if you factor in lead times onto the backlog, onto the orders, and so on, as we get later in the year, that starts to turn overall in the right direction in terms of revenue. Gotcha. Okay. Great. And just lastly, Carlos, I think the tax rate a little lower this quarter. I know I usually get those stock comp benefits in Q1. Any change to the full-year outlook? No. For the full year, I continue to think we'll run between 20% and 21%. Larry, I think the effective tax rate we have in the first quarter here is about what I expected. I thought we'd catch about half our effective rate for the year this quarter, and then we'd make it up, more normalized rate, in Q2, Q3, and Q4. But no real surprises. It played out the way I thought it would. Slightly better than last year's benefits, but still in line with history and what we've seen in the past. Got it. Thanks, guys. Appreciate all the color. Okay. And we'll take our next question from Peter Arment with Baird. Please go ahead. Yeah. Good morning, everyone. Thanks for all the details. Hey, Victor, maybe just a quick one on if you're still seeing lingering impacts from the supply chain, and that's also a factor that's kind of impacting you on the top line. Thanks for asking. It's a good question. We're not seeing much of it. It has really improved. Whether it's exactly back to normal, I'm not sure because I'm not sure what the new normal will be, in fact. But I would say that at this point, supply chain is almost back to where it was. And the labor market has been challenging for a while and continues to be. And so I would say that that impacts us as much, if not more, probably these days than supply chain, just getting good qualified people into the businesses. Maybe if you could just update us on how Exxelia is doing after owning the business now for, I guess, almost a year, right? Yes. Thank you. Yeah. We're very happy. We own it. It's doing essentially as we expected, and a lot of good potential ahead. Also, they're looking at a number of acquisitions we've been able to bring to them. They've brought some. We'll see whether they transpire. But a lot of good things happening there, and so far, so good. Great. And quick one for Carlos. Carlos, just rough expectations of how you're thinking about interest expense for the year. I know the goal is obviously to continue to de-lever. Yeah. I mean, so right now, if everything plays out, I'm expecting our interest expense quarterly to run $35 million-$37 million. That's pretty much what we booked this quarter, about $38 million. So I think as we pay some debt down, if we catch a break on a few rate cuts, you never know. I have it sort of tailing off a little bit. But that also is a function, Peter, of how quickly I can pay the debt down. And depending on how many businesses Eric, Victor, and Larry want to buy, will certainly influence that during the year. Got it. Appreciate all the details. Larry, congrats on the award. Thanks. Thank you. I just might add something to what this is, Victor, what Carlos had to say. We continue to look at acquisitions. Most are overwhelmingly in our historical size, and we have an excellent acquisition pipeline, very strong. Again, whether we do them remains to be seen, but we will continue to pursue those acquisitions that would fit the right way while being mindful of the importance of reducing debt and capital structure. Just to further expand on what Victor says, which is completely correct, it's a balancing act. We are in the business of expanding, creating cash flow and bottom-line income. If we see an outstanding acquisition, we will make it. At the same time, we have to watch our debt level, and we're trying to reduce it. As you saw, we made a Honeywell acquisition recently because we believe it will be very accretive and very positive cash flow. We made the decision to acquire it by using debt, which reduced our ability to reduce overall debt. But on the bottom line, it was helpful to HEICO and actually where you get more income and debt, so the balance actually benefits the ratio of debt to EBITDA. But anyway, this is all a balancing act, and we watch it very, very carefully because, as you know, we are focused on bottom-line cash flow. So we will make these acquisitions when they are very, very desirable, and we might have to use some debt, but we'll take each one as it comes. We're here. Appreciate it all. We're here to grow HEICO bottom-line cash flow. Again, it's a balancing act, and we're very careful with it. We'll take our next question from Sheila Kahyaoglu with Jefferies. Please go ahead. Good morning. Thanks, guys. Victor, I'm going to start with you, if it's okay, given the ETG margin spotlight. You gave us some color on R&D up 20%, so it implies about 100 basis points of margin pressure. Can you maybe talk about the less favorable sales mix, how much it was, maybe even pricing into the mix as well, just on the bridge and how we think about that improvement? As you said, Q3 and Q4 are headed to be better, and should we expect a similar sub-20% rate in Q2? Sure. Sheila, a couple of things. One, I would be surprised to see a sub-20% rate in Q2. Number two, the sales difference was not based on pricing. It was based on the shipment schedule. So I would call it a fairly normal pricing environment, which means that in some instances, the customers can accept prices that recognize our costs that may be higher. And in other instances, we have longer-term contracts where pricing is locked in. So it's kind of a normal scenario on the pricing side. So really, on the revenue side, it was all about the shipment schedule and when things were supposed to ship. It's not necessarily, by the way, the production rate. So we try to keep the facilities level loaded. Our businesses try to stay level loaded in production, but it depends upon when the order is due for delivery or acceptance and test by the customer. That dictates a lot of how it works for us. So again, just to emphasize, I would expect north of 20% gross margin, operating margin on the quarter, which, of course, would be north of 24%, the true margin excluding intangibles, amortization. Got it. Any sort of color on the mix impact in the quarter in terms of margin headwind? Not really, other than the shipment schedules in our higher-margin businesses were lower than they had been in the prior period, and that brings down the margin. But I don't want to break out which business has what margins, but publicly, I think our business should be public. No, no, no. No problem. Well, hopefully not. Eric, one for you, if it's okay. Wencor, how do we think about this revenue synergy? Is the best way to look at it based on number of PMA parts? And the sales per part is about four times greater at HEICO than it is at Wencor. So if you have that marketing channel, is that a potential way to think about the sales opportunity, or how are you thinking about it? That's one way to think about it. I'm also really looking at it as how the product sets are very complementary, number one. Number two, without getting into specific customers, I would say there are a number of extremely strong sales relationships on the Wencor side as well as the HEICO side. And I think that we can help each other. The businesses can help each other with sharing those relationships and just basically one hand helping the other. If you look historically, we've taken up our margins over the last decade that you covered us quite significantly and, frankly, have even beat where I thought they would be. And I think that there's more potential in that regard. There's a lot of sharing that also can occur over on the repair side in terms of DER repairs as well as they're already using the PMA parts. So I think that that's an advantage. In the defense side, we're already cooperating and working together, whereas orders used to go out to third-party companies, they're now being placed internally, and that's very strong. Likewise, over in our specialty manufacturing, there's a lot of product that our specialty manufacturing group can build for our other businesses, including Wencor, and we're really pushing that as well. So I think it's just a very broad-based level of cooperation, as I said, without integration. When you've got really talented people who are running these businesses, who have really mastered their businesses, we find that by giving them autonomy, that's a very intrinsically motivating feature. And that's not something that exists in many companies. If you look at HEICO overall, across all of HEICO, we've got roughly 100 business heads. And for a company of our size to have 100 people of this talent and skill set where they perform so well and they really enjoy what they do because of the way that they're treated, I think that's the real synergy here. It's not going to be from knocking out little costs here and there. I mean, yes, there's an opportunity to do that. For example, in trade shows, in a number of the trade shows, Paris, Farnborough, and others will have booths together. So HEICO and Wencor will be together. There'll be certain other trade shows where they can be separate. And we want the businesses to each have their own strategy and to really take responsibility for their results. So I think that's why we're getting these benefits. Great. Thank you. Thank you, Sheila. We'll take our next question from Mariana Perez Mora with Bank of America. Please go ahead. Thank you so much. First of all, congratulations, Larry, on the award. Thank you very much. My first question, no, you're welcome. My first question is about R&D, follow-up on ETG R&D. What are the main trends? Because you said it's pretty much across the board increase, but what are the main trends that are driving this increase in R&D? What are the opportunities that you guys are seeing that actually are calling for this increased R&D? Is this a particular technology? Is this a trend? Is this, I don't know, an end market? Could you please discuss that? Sure. This is Victor. It's a very good question. By the way, when I say across the board, it doesn't mean in every business, but it's kind of what I should clarify what I mean by that is the majority of the businesses or sort of a super majority of the businesses. It is what I would call the trend. There's a tremendous amount of opportunity for our businesses on newer and evolved products. Sometimes it's not just what you would consider revolutionary change, right? It's not necessarily developing something that's wholly new. In our case, it is more typically evolutionary, and it is an improvement on an earlier version or iteration of a product. So what we're seeing in a high number of our customers is demand for what you would consider sort of our next generation of products. So it's not just technology-based. It's not, for example, as though there is a new design that has been developed. Bluetooth came around many years ago, and everybody was implementing Bluetooth. It's not like that. It's more responsive to the individual needs of our customers. Are usually customers calling for this improvement? How does R&D, how you pick what areas or what specific products you'll do R&D on? So we leave it to each one of our businesses to make those choices. In some cases, it's customer-initiated. In other cases, it's initiated by our subsidiaries or somewhere in between. I mean, our businesses have regular meetings and visits and calls with customers, and so they're aware of new programs the customer may be on, new designs that they might need. And that's probably the most typical, but it runs the gamut depending on the architecture of the particular business as well as the products. But the key to it is, one, a willingness to always invest and respond to the customer needs depending upon the history and relationship with the customer, the likelihood that they will, in fact, turn into orders. I mean, let's be honest. There are companies who will always ask their suppliers, their vendors, partners to develop something on their dime, and then they may not buy it. So that is a factor that we consider is what is the history with the customer? Are they likely to, in fact, convert to orders? Is there a PO standing behind it? Are they on a program of record, for example, if it's defense? And where do they stand with that program? What intel are we getting in the broader community? What do we hear from our other partners, customers, even trade shows, government people, things like that? So each business, though, is responsible for that. And that's, to be honest, the beauty, I think, of our company is that it's not from on high. It is experts talking with experts. We believe in devolving those decisions down at the lowest level to be able to understand the customer best. Thank you. And my last one is on M&A. Could you please discuss when you do acquisitions like the recent Honeywell licenses on avionics? And they are adjacent opportunities for you, but I could imagine that a company like this or a license could be able to unlock more upside opportunity in terms of revenues under the HEICO ecosystem compared to if this license ends up in another third-party MRO shop. Could you please discuss how you think about those upside opportunities and how long it could take to actually see them? Sure. Mariana, this is Eric. I'd be happy to answer about that. So HEICO has done a number of licensing deals over the last decade. So we're very well experienced on doing those licensing deals. And in particular, when you look at the component repair footprint, HEICO has got 19 individual MRO businesses just within Flight Support. And then over in ETG, there are another number of them there as well. So we've been able to buy these licenses and basically take the technology and put it into a business that's already incredibly experienced in that market niche and really understands the technology. So when we buy a license, we're able then to go out to the customer with people who can hit the ground running, in many cases, are already working with the customer on other items, and it's really a seamless experience. So I think that there's plenty of opportunity for HEICO in this area to continue to grow in adjacent white spaces. I can tell you that our reception at the customers for the Honeywell product has been extremely strong. They've been very happy about that. They're used to our experience with regard to quality, turn time, and price. So the reception has been very strong. So I think that it was a great move for both Honeywell as well as for HEICO as well as for our customers. There's just a net benefit and an increase to the industry here. So I think that there's additional opportunity for us. Great. Thank you so much. Thank you. We'll take our next question from Gautam Khanna with TD Cowen. Please go ahead. Hey. Good morning and congrats on the award. Thank you very much. Of course. Hey, a lot of questions have been asked and answered. I was wondering if you guys are seeing any difference in activity level in the direct channel versus the indirect. And maybe you could just talk by market, whether it be aftermarket, whether it be OE, if you're seeing anything discernibly different, any restocking, destocking in the distributor channel and the like. Yeah. Gautam, this is Eric. So you want to know how we're doing with regard to aftermarket and OE on order pattern, or what would you like me to comment on? Yeah. So maybe just distributors, defense, and aero. Are you seeing any differences in those order patterns versus selling direct outside of the distribution channel? Well, so our distribution businesses are doing extremely well. They're continuing to gain market share. They have the right inventories. I think our customers are very happy as a result of working with them. Likewise, over in the PMA area where we in the repair area where we sell direct, it's likewise the same thing. So I would say a very good strength in both. With regard to product availability on the Flight Support side, things are tough where, frankly, our vendors are quite behind. And I think our results could be even better if they were able to shift the overdue backlog. And this is really across the board in the parts area, I would say, both the PMA as well as the distribution. I think there have been some raw material challenges as a result of the sanctions. And then, of course, as Victor alluded to, with regard to labor, that continues to be a challenge. But definitely, the supply chain is tight. There really isn't. There's no excess capacity. Things are very tight. And we're hoping that by the end of 2024, things normalize. Frankly, I would have thought by now, things would have normalized more. But unfortunately, our vendors, they're really struggling. Things will get better after November. Hope so in a lot of ways. Yeah. And Carlos, you've talked about the 21%-22% Flight Support margins as sort of the right ballpark. And I think previously, you said the cycle would be somewhere in that range as well. I mean, is there any? What is the? It sounds like Wencor is going better. There is some pricing opportunity, as you mentioned, in response to Noah's question. I'm just curious, what is your confidence longer term of maybe doing better than that? Forget fiscal 2024, but just looking at. Sure. Well, highly confident. I mean, I think if you look back over the last decade, just if you wanted to do a history lesson, go back from pre-COVID and just look back 10 years, and you'll see a pattern of where the FSG continually squeaks out 20, 30, 40 basis points a year. You know what I mean? Sometimes it's a little flatter, but if you look at that trend, I think we're returning to that. And that's on an annual basis, by the way. I think we're heading in that direction. We can't continue to grow at a breakneck pace. I think we're at a pretty high growth level right now. And at some point, we get back to what I'll call a normal business cycle, and that's when you'll see our margin take those nice incremental jumps up. Until then, with our end markets being as hot as they are, the margin could fluctuate a little bit based on volumes, what we're selling. But I do think at some point when this hypergrowth scenario we're in softens and gets back to, I don't want to say business as usual, but more customary demand in the market, I would say that that incremental eke out of growth north, small increments, is what we would expect to see. And as far as the. Thank you very much, guys. By the way, as far as the 21%-22%, I mean, I feel very confident that we're going to wind up in there. We always could do better, but for modeling and thinking about the business, that's where I'd keep your focus in that area. Appreciate it, guys. Thank you so much. Thank you. As a reminder, it's star one if you'd like to ask a question. We'll take our next question from Bert Subin with Stifel. Please go ahead. Hi. Hey, Hey, good morning, and thank you for the question. Good morning. Maybe, Eric, first question for you. You talked about pricing being a primary growth driver when it comes to new customers, just relative to existing customers where it's more a function of inflation passed through. Can you just talk about what your new customer strategy is and maybe what percent of sales come from new customers in a given year? And just also, is the new customer increasingly an internationally based customer? Yeah. That's a good question, Bert. We don't have that many new customers, and that's pretty much because we deal with everybody. So occasionally, when an airline gets formed, there can be a new one. I would say that our biggest opportunity is to continue to increase our market penetration with our existing customers. So that really is where the big opportunity is as opposed to new ones. I mean, we do get new ones, but we're pretty much dealing with everybody in the world. So unless a new airline gets created, there wouldn't be that type of opportunity. Just a clarification there, Eric, just in terms of the pricing, if you're having sort of greater market share gains or market penetration, is that a different sort of function? If you're selling an existing product to an existing customer, you're pricing that, I guess, more gently in terms of just passing through inflation instead of maybe marking to market. But if you're selling them a new product, is that an opportunity when you think about margins? Yeah. The The answer is yes. So if a customer is buying a product and it's under contract, then obviously, they would have price protection for the terms of the contract, the duration of the contract, if that's what it's provided for. And of course, there are different things which matter to different customers, so we're very accommodating there. However, if that customer wants to start buying a part that they haven't purchased, then they would get a price based on the newest price as opposed to what the old price was. So there's definitely a big incentive to get started and get locked in with us as early as possible. Okay. Got it. Super helpful, Eric. Just one follow-up. Larry, you reaffirmed your view toward 15%-20% earnings growth that you sort of highlighted last quarter for FY2024, at least based on what you're seeing today. If we were to get to the end of the year and you were to outpace, I guess, on the positive side, the 20% mark, I'm just curious if you think that'd be more a function of FSG, ETG, or faster debt paydown. Well, it could be the result of all three. However, we try to control earnings growth. We really do. HEICO, I think investors like consistency. I know we're probably the largest single investor in our company together with 401(k) and Carlos. So we like consistency. We don't like to go up one year, down the other. In order to do that and to generate cash flow so we don't get over-leveraged, we like to continue to be within 15%-20%. So it is possible we could go over 20%. At this point, everything I know and our own thought projections, we will be within 15%-20%. Would we go over it? It's possible. But at this moment, I wouldn't predict that. Again, I am conservative. However, I do say that my own guesstimate is that we will be within 15%-20%. So I don't know if that answers your question. But the other thing is I see that both of our businesses are really very strong. You've heard the whole story. Victor has described the first quarter of ETG is really a weak quarter because we couldn't ship and these various things. The backlog supports a huge increase from the second to the fourth quarter. So we should see the ETG definitely level out and return to what I would call reasonably normal profitability. Flight Support, similarly, is very strong too. With the Wencor acquisition and the possibilities of gaining some of the synergies, which we're doing very slowly, and we want to build it in but it's a long answer to your question, but I really think at this point, we'll be within 15%-20% growth. If we go over, I can't predict who might do it. Fair enough. Thank you for the comments. I appreciate it. Thank you. We'll take our next question from Louis Raffetto with Wolfe Research. Please go ahead. Hey. Thank you. Good morning, guys. Morning. Carlos, you talked about expecting, I guess, FSG to be pretty strong in 1Q. Was there anything specific there on mix? I'm just trying to bridge sort of the 100 basis point clean margin sequential improvement with sales that weren't sort of too dissimilar from last quarter. I would say that we had strong performance in parts as kind of leading the pack. The repair was a close second. Specialty products was soft and went behind. I think that based on shipments, that business is a little more predictable, believe it or not, than the parts and repair business are. So we had anticipated that the specialty products would slow down slightly in Q1, and it did. And then we have expectations it's going to be fine for the rest of the year. But if your question is, is there any other strange mix? No, this has pretty much played out the way I thought it would. All right. Great. Thank you. And then, Victor, just one for you. You laid out strong aerospace in the quarter and then some of those other markets. I didn't hear anything on defense, so I know it's a big part of the business. Just wasn't sure how that did in the quarter. I know you kind of had seen some sequential improvement. Did that continue this quarter? Did we step back at all? Yeah. Louis, it's continued overall all in to grow. And so what I was segmenting out was the areas that were weakest before, but defense is, as we expected, moving in the right direction. All right. Great. Thank you. And then, Larry, just one for you. You kind of talked about balancing M&A and leverage. So I guess as we think about the rest of the year, would you be willing to go above 3x leverage? Just a solid deal that would put you there, or is that kind of a hard limit? The answer is if it was super sensational and it really added to the bottom line and we looked at it and the payback as a result of it would drop us below the 3x back into the 2x area, we might consider it. We're very careful with debt. And also, interest rates are very, very high. So to make these acquisitions now because of interest rates, it's a little bit harder. So to answer your question, it would have to be something sensational to make us go above 3x. And so far, I have not seen something so sensational. So I think it's highly unlikely. But as we get from, say, just under 3x as we head to 2x, which we estimate in the press release, we said 12-18 months from the time we incurred the debt. And we believe that's accurate. But along the way, we might find, as we did with Honeywell, a very accretive cash flow and EPS acquisition, which would actually make the ratio if you do the arithmetic, you make the ratio of debt to EBITDA would go down because of the earnings that it would produce. We would do that. So again, that's why I say it takes a lot of thought process. We just don't make acquisitions willy-nilly. And remember one thing, that the Mendelsons as a family and our 401(k), we are there to protect that nest egg. And we're going to be very careful in incurring any kind of debt. And we don't want to get into any kind of financial problem. We have great cash flow. We have a great business. It's growing nicely. So we'll be very careful with that debt. I don't know if that answers your question. I really appreciate it. No, it's perfect. Thank you. Thank you. Thanks, Louis. There are no additional questions. Well, I would like to, again, thank everyone on this call for their interest in HEICO. We're available. If you have other questions, you can contact Carlos, Eric, Victor, myself. And if you don't, we look forward to speaking to you on the second quarter earnings teleconference. That's the end of this teleconference. And again, thank you. Have a wonderful day. This concludes today's call. Thank you for your participation. You may now disconnect.